Stealing from the rich

In an attempt to ease the debt crisis facing Europe, a new tax system has been proposed to take revenue from financial transactions. Jack Walsh investigates the ‘Robin Hood’ tax and its consequences.

In January, French president Nicolas Sarkozy expressed interest in the introduction of a tax on financial transactions in the coming year, regardless of the decision by fellow European parliaments. This ‘Robin Hood’ tax, as it is commonly called, refers to a tax on financial transactions at the suggested rate of 0.1 per cent. The tax is similar to the Tobin tax, and in its current structure sets out to propose a levy on currency market transactions as well as trading in shares, bonds and derivatives, which would fundamentally raise revenues for governments.

This is one of a number of attempts by the French government to help promote job prospects in the lead-up to the country’s general election in April, in which Sarkozy is already facing a losing poll battle with Socialist party candidate Francois Hollande. The French government hopes that the introduction of the Robin Hood tax will serve as an example to be followed by other EU member states. “What we want to do is create a shock wave and set an example,” stated Sarkozy in a recent interview, “that there is absolutely no reason why those who helped bring about the crisis shouldn’t pay to restore the finances.”

With such plans, Sarkozy has already won the support of Germany’s Minister of Finance Wolfgang Schaeuble, who firmly believes that investor confidence in the Eurozone would return, despite the turmoil related to the sovereign debt crisis in recent years. Schaeuble is hoping that the Robin Hood tax will be introduced across Europe, but if not then the Eurozone is his next priority. The European Union’s executive proposed a bloc-wide tax on financial transactions, that it claims could raise €57 billion a year. Many banks denounce the plan as nonsense and Britain has stated that it would only support a global levy.

The EU’s executive European Commission formally adopted plans in September for a financial transaction tax, which will need unanimous approval from EU states. Under the plan, stock and bond trades would be taxed at the rate of 0.1 per cent, with derivatives at 0.01 per cent. The EU executive further explains that the tax would be imposed on all transactions in financial instruments between financial firms when at least one party to the trade is based in the bloc. Schaeuble favours an immediate introduction of the tax, “I don’t want to wait until such a tax is introduced worldwide. Otherwise we would risk not only the stability of our financial markets … but we would also be endangering the legitimacy in the public eye for the entire system.”

Yet several states are reluctant to introduce the tax, maintaining that Europe’s market is simply not strong enough to adopt it and that it would harm global financial centres of trade. Ireland has become a prime example of this, with many uncertain about the changing face of the markets that this tax may lead to. Under this view, should the tax be streamlined, then Dublin’s financial sector could be decimated. The fear is that foreign investors may abandon the IFSC for areas and cities that will not be subjected to the tax.

However, on the 30th of January, Taoiseach Enda Kenny signed a new European economic treaty focused on financial discipline. The conference was attended by twenty-seven representatives of EU states, with only England and the Czech Republic refusing to sign the pact. Although the possibility of a Robin Hood tax was not discussed, European leaders’ pack mentality on economic reform has become so charged that the possibility of the introduction of the tax is certainly within reason.

In the United Kingdom, a debate has begun between those who believe that the tax will cause London to no longer be seen as a world financial market leader, and those who see the tax as only beneficial for the many who feel cheated by the economic situation. British Prime Minister David Cameron has confirmed the UK’s objection to the aforementioned fiscal treaty, stating, “We are not signing this treaty. We are not ratifying it. And it places no obligations on the UK,” adding “Our national interest is that these countries get on and sort out the mess that is the euro.” In retaliation, German Chancellor Angela Merkel has stated that the new treaty could be slotted into EU law within five years. Many public figures have come out in support of the new tax, with Archbishop of Canterbury Rowan Williams stating, “there is still a powerful sense around – fair or not – of a whole society paying for the errors and irresponsibility of bankers; of impatience with a return to ‘business as usual’ – represented by still-soaring bonuses and little visible change in banking practices.”